Sell in May and Go Away?
For those who didn’t catch my last newsletter, I have been travelling in Asia, specifically Singapore and Hong Kong. In Singapore, I attended and spoke at Mining Investment Asia and, in Hong Kong, I attend Mines and Money Asia.
The trip was fantastic, I’m eagerly awaiting my next trip to east Asia!
More specifics on my trip in the coming weeks, but for now, some thoughts on the market and what I am buying at the moment.
Enjoy!
Thoughts on the Market
Over the last month, readers have continued to ask me where I think the junior resource market is headed and if I think that the adage, “sell in May and go away,” is the mantra that investors should use in 2019.
Firstly, where do I think the junior resource market is headed? Simply, I don’t know, no one does. The stock market is a complex beast with many factors affecting its direction. However, I know that isn’t necessarily the answer most of you are looking for, so I will add some colour, purely for fun and entertainment.
I continue to believe that gold is a must-have insurance policy, because it appears to me that things are only becoming more complex within the global economy. In my opinion, gold remains the best way to protect your wealth as we head toward major monetary changes in the future.
I will add to this; I view a rising gold price with trepidation because, to me, this is signalling a growing uncertainty within the world, pushing us closer to this major change. I believe you must ask yourself, ‘what does the world look like if the gold price is US$10,000 per ounce?’ My guess is, ‘not good.’
In terms of the base metals, I continue to be long-term bullish on their demand as the human race continues to consume goods at an ever-increasing rate. Further increases in demand, however, don’t necessarily mean that the price of the base metals will go up.
If I were to pick a metal that I believe has a good chance of going up in price, it’s nickel. There are a number of reasons why I believe this could happen and, if you want to hear them, please check out my presentation from this year’s VRIC. If you have more in-depth questions, let me know.
Now, for the junior resource companies; for those who have listened to or read my work previously, you will know that I don’t invest in junior companies because the price of the underlying commodity with which the company is exploring is going higher.
By following a mantra like this, it forces you to stick with the best of the best companies and, thus, protects your downside risk. If your stock picks rely on a rising metal price, I assure you it’s only a matter of time until you lose money, because no one can predict where metal prices are headed with any consistency.
Sell in May and go away? Personally, I don’t put much stock into seasonality type theories like this and stick to fundamental analysis to determine my buys and sells in the market. In the long term, I think the vast majority of investors would be much more successful if they ignored market commentary such as this, as again, who can predict the future with any consistency?
Second to that, while many of the junior resource company share prices have fallen over the last year or so, there are many which have stock charts that reflect a much brighter story. The companies which have bucked the trend in most cases are exploration companies, because discovery pays no matter where you are in the cycle.
Additionally, there are some stories which are run by some very talented management teams, and the cream always rises to the top!
Companies I am Buying
Irving Resources (IRV:CSE)
I mentioned Irving in my tax loss buying / 2018 year in review article in December. Irving is 1 of 2 junior companies exploring for gold in Japan and, at the moment, have the drills turning at their highly prospective Omu Gold Project in Hokkaido.
The stock price has doubled since December as a function of the build up for drill results and with the newly announced strategic financing by Newmont. Additionally, Irving has released pictures of the drill core from their first 2 holes.
Along with the pictures they have provided some explanations of what they are seeing in terms of alteration in the drill core, thus far. Check out their webpage for more details.
Personally, I’m really encouraged by what I have seen, especially the results from hole #2, which appears to have hit the top portion of the boiling zone of this low sulphidation epithermal target.
Is it a buy here? I think it depends on your risk tolerance. Currently, the MCAP is sitting around $100 million, with a portion of that value being derived by the gold they have in the ground in the form of the past producing underground mine within the Omu property.
Besides that, the valuation, from what I can tell, is solely based on the speculative upside potential in this low sulphidation target they are drilling at Omu which, I think, at this point, is warranted.
I bought more stock around $1.70 when I saw the news release with the core photos because I thought they looked very similar to the Hisikari core photos which I had looked at months ago.
For perspective, Newmont bought in at $2.20 a share, but given the size of Newmont and their outlook for what Omu might mean to them in the future, the entry share price isn’t necessarily their primary concern.
For individual investors, however, it can mean a lot, as a miss on the first drill results and the share price will likely be cut in half, especially in this market. In saying this, I believe Irving will give me multiple kicks at the can, even if these first assays don’t return good results.
For those with a healthy appetite for risk, therefore, the current price really isn’t that bad given what the upside potential may be. I, however, would be more comfortable looking for an entry price below $1.90.
Drill core has to be sent offshore for assay, therefore, we are still 4 to 6 weeks away from results, and with this in mind, there may be a chance of weakness in the share price.
FPX Nickel Corp. (FPX:TSXV)
The best bang for your buck in terms of nickel juniors out there. Current share price is at $0.12, and considering the metallurgical optimization on the project and a fantastic solution to their debt issue, there is deep value here.
Check out my articles and presentations to see why I believe the future is bright for FPX.
Maritime Resources (MAE:TSXV)
I was an investor in Anaconda Mining for a long time and believed that the proposed merger of the 2 companies last year would have been fantastic for both sets of investors. That, however, didn’t happen for a number of reasons.
Today, Maritime is under new management and appears to be progressing in the right direction in terms of moving its Hammerdown project toward production.
Recently, they raised more than $6 million dollars at $0.10 toward the development of Hammerdown, with both infill and exploration drilling in the plans.
In October 2017, I was able to visit Rambler Mining’s Nugget Pond mill, which, in Hammerdown’s PFS, is the site for processing its ore (under a tolling agreement). Having seen Nugget Pond’s gold circuit, I can attest to it not being a turn-key operation. Money will need to be spent to bring the gold processing equipment back up to operational condition.
Personally, and this is complete speculation on my part, I think it’s more likely that we will see another attempt at the merging of Anaconda and Maritime.
Appreciation in the share price of Maritime could be a major catalyst for talks, as a merger of roughly equals may be an easier sell to Maritime shareholders this time around.
I was a buyer at $0.09 and see a lot of expansion potential at Hammerdown, with the added bonus, in my mind, that there could be a strategic merger in the future.
Commander Resources (CMD:TSXV)
In my decision to invest in Maritime, I came across the fact that Commander owns a royalty on Hammerdown, which, in my estimation, is worth a few multiples of Commander’s currently paltry MCAP. Keep in mind that without Hammerdown going to production, the royalty is worth nothing.
In addition, if you dig further into Commander, you will see that they have equity positions in both Maritime Resource and Aston Bay. Collectively, these positions, last I checked, were worth around $800K.
Last spring, Commander completed a $2.5 million financing, which has been burned down to $1.5 million as of PDAC.
At the moment, therefore, you can almost buy Commander for the value of their cash and equity positions, mix in the potential of the Maritime royalty and your downside potential is minimal, in my opinion.
I was a buyer at $0.095.
Aethon Minerals (AET:TSXV)
Currently, Aethon’s MCAP is roughly around their cash value. With news on the horizon, I think there are good things to come for Aethon.
Concluding Remarks
While the majority of investors might decide that they know where the market is headed and sell in May, I’m happily buying companies that are selling for less than their value, and have catalysts towards price appreciation.
A few good articles are coming your way in the coming weeks, stay tuned!
Until next time,
Brian Leni P.Eng
Founder – Junior Stock Review
Disclaimer: The following is not an investment recommendation, it is an investment idea. I am not a certified investment professional, nor do I know you and your individual investment needs. Please perform your own due diligence to decide whether this is a company and sector that is best suited for your personal investment criteria. I do own FPX Nickel Corp., Irving Resources, Maritime Resources, Commander Resources, and Aethon Minerals stock. I have NO business relationship with of the companies mentioned in this article.
